THE THEORY OF REVENUE

CONTENT

1. Definition of Revenue
2. Types of Revenue
3. Profit
4. Profit Maximization

Definition of Revenue

Revenue of a firm is the receipt (money) obtained from sale of its products. It is the income realized by a firm from the commodity sold.

Types of Revenue

The following are the types of revenue:

1. Total Revenue (TR)

This is the total amount of money a firm receives from the sale of its products. It is derived by multiplying the price of a commodity with the quantity sold. Therefore, Total Revenue (TR) = Price (P) x Quantity (Q).

2. Marginal Revenue (MR)

This is the addition to total revenue resulting from the sale of an additional unit of output unit sales per period of time. Mathematically, it is obtained by

MR \(= TR_n – TR_{n-1} \) or \(\frac{∆TR}{∆Q}\)

Where

∆ = Change

TR = Total Revenge

Q = Quantity Sold

3.